Tuesday, September 06, 2016

Brexit: The Phoney War

Gavin Hewitt
Chief correspondent
BBC World Service
6 September 2016

Returning to the UK from North America is to encounter an air of unreality. Britain has embarked on the biggest constitutional change in nearly 50 years - but you wouldn't guess it.
Informed but incredulous Americans ask "you really had no plan?"

The much-quoted "Brexit means Brexit" is met with bafflement. A Washington Post columnist said it had as much meaning as a parent declaring "bedtime means bedtime". The French talk of "le grand flou de Theresa May", the great vagueness of the British PM.

In this period of seeming inactivity, the financial markets and the British consumer buy time and cover. The IMF declares the financial turmoil has subsided. UK manufacturing records the biggest month-on-month increase in half a century. The sense of crisis ebbs, or it does until the next month's figures appear. The prime minister warns of "difficult times" ahead.

The politicians' phrases are more about buying time than delivering a plan. "Brexit means Brexit" is aimed primarily at preserving unity in the Conservative Party. The Brexiteers remain eagle-eyed for any backsliding and the mantra that "Britain is open for business" is an empty sound bite. It is unclear anyone believed the opposite.

And during this slow post-Brexit summer Europe has largely been a passive bystander, obdurate in its refusal to even talk about options before the UK invokes Article 50 of the Lisbon Treaty and the formal withdrawal process begins.

The President of the European Council, Donald Tusk, insists "our position is crystal clear: there will be no negotiations without notification. This principle is enshrined in our treaties…".

And yet informal talks would speed up and possibly smooth out the formal negotiations, although there is insecurity in many of Europe's capitals. The German vice-chancellor Sigmar Gabriel warned that the EU could go "down the drain" if other countries saw Britain keeping "the nice things". So, in the divorce proceedings that lie ahead, there must be some pain.

Occasionally there is a shaft of light, of reality. Frans Timmermans, the vice-president of the European Commission, declares: "The UK will remain a European country if it is not a member of the EU and that should be the basis, I believe, for the negotiations."

But, at times, it can appear that Europe's leaders have a vested interest in Britain's failure rather than in achieving mutual success.

It is clearly in the interests of both parties in this split to talk informally. The politics may be difficult but the economic signals from the eurozone are still troubling. The European Commission says it is expecting growth of 1.8% but the figures mask continuing weakness. In the second quarter of the year, Italy and France posted no growth at all.

A fragile recovery might be expected to prompt a flexible approach towards Europe's second-largest economy but when the EU meets in Bratislava in the coming days to discuss its future, Brexit will not be the major subject.

In the UK the cabinet, two-thirds of which voted to remain in the EU, will have to make some hard choices.

Prime Minister Theresa May has strongly hinted that Britain will be looking for a "bespoke" rather than an "off-the-peg" deal with the EU.

That seems to rule out the Norway model that offers access to the single market without tariffs but includes paying into the EU budget and accepting freedom of movement. And the UK would have no voice in decision-making.

It probably excludes the Canadian model too. That offers tariff-free access for most manufacturing goods but not services - and services account for four-fifths of British GDP.

At the heart of the British dilemma lie two irreconcilable aims; retaining full access to the EU single market and ending - or greatly reducing - freedom of movement. Europe's leaders have said repeatedly - you can't have one without the other.

A great political battle is looming which carries risks for the Tory party and explains Theresa May's caution.

There are those who argue passionately that access to the single market must be retained. Britain's economic future depends on it. "It is a delusion to argue that Britain can prosper outside of this area," says Anna Soubry, the former business minister.

The financial services industry depends on being able to operate across Europe and it contributes £65bn to the Exchequer. These voices are prepared to seek a deal on freedom of movement that would reduce immigration. Their strategy is dismissed by the other side as "Brexit lite".

Then there are the Brexiteers who question Britain's need to remain in the single market.

The former chancellor Nigel Lawson is among those who question whether the single market has brought the discernible benefits claimed for it. Like others, he argues that after the referendum no future government can accept the right of EU workers to live and work in the UK. And, if that is the case, Britain will put itself outside the single market.

He sees the City of London's position as unassailable. There are some inside cabinet who believe the City should be left to fight for itself, who would accept tariffs and higher prices for the consumer in order to make a full and complete break with the EU.

The prime minister has chosen her words carefully but has made it clear the referendum vote requires "controls on the numbers of people coming".

It is also clear that, if possible, the government would like to retain tariff-free access to European markets - but that will be at the heart of the negotiations.

What makes the UK's position more difficult is that it is almost impossible to take unofficial soundings, to test what flexibility may exist.

As things stand the government will have to declare its hand, set the clock running, before getting a sense of Europe's response. And leaders like Angela Merkel and Francois Hollande have limited room for manoeuvre. They both face elections next year and concessions to the Brits may not be good politics.

And even if the formidable question of the trading relationship between the UK and the EU is ironed out, the list of further hurdles poses a massive administrative challenge.

Will parliament get to vote on whatever deal emerges? How will any deal work for Scotland, Wales and Northern Ireland? What about the acquired rights of EU citizens living in the UK? What about 43 years of EU laws and policies? What should be retained or discarded? And the questions continue.

So, for a period, the phoney war will continue but the pressure will grow to allow informal contacts that will make the real negotiations more productive. Watch for those back door deniable channels opening up.

And on all sides there are risks. Theresa May has to keep her party and cabinet united. Businesses in continental Europe as much as in the UK want to continue trading and to end uncertainty. And then there are tensions between the Commission and the European Parliament on the one hand and the member states on the other.

And so, as summer eases into autumn, the British people are no clearer as to what Brexit will mean.

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